TSMC's Q3 Earnings Beat Expectations; the Semiconductor Cycle Bottom is Approaching!
Taiwan Semiconductor Manufacturing Company (TSMC) released its Q3 financial results and projections, which outperformed market forecasts. In this report, we delve deep into the results and highlight TSMC's perspective on the emerging AI trends and the recent expansion of U.S. sanctions.

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TSMC Q3 2023 Operational Performance Reviewed:

  • Breaking down by technology platforms: The proportion of high-performance computing dwindled to 42% (previously 44%), while the share of mobiles saw a notable improvement, reaching 39% (up from 33%). Both segments witnessed QoQ growth, at 6% and 33% respectively. This surge reflects the rejuvenated demand following the launch of new mobile devices in the latter half of the year. In contrast, the previously steady automotive electronics sector witnessed a slide, decreasing to 5% from 8% previously, indicating a QoQ decrease of 24%. This suggests that the earlier semiconductor shortages impacting the automotive sector are beginning to ease.
  • From the manufacturing node perspective: Following the mass production of the N3 in the second half of the year, it began contributing to revenues, accounting for 6%. The N5 process also saw a significant rise, reaching 37% (up from 30%), while the N7 process slipped to 16% (down from 23%). This shift underscores a noticeable resurgence in demand for high-end mobiles, as well as the push for cutting-edge manufacturing driven by demand for AI servers.

In summary, TSMC's Q3 revenues and profit margins both exceeded expectations, marking a rebound from the previous quarter's sluggish consumer electronics performance. Simultaneously, despite cloud service providers being tentative due to uncertainties in the market, their increased investment in AI servers has bolstered demand for advanced manufacturing processes.





TSMC Q4 2023 Forecast and Key Points from the Meeting

MacroMicro has consolidated the following pivotal details from TSMC's recent analysts' briefing:

1. Revised Financial Projections, Steady Capital Expenditures, and a Semiconductor Market Bottom in Sight

For Q4 and next year, assuming an exchange rate of USD/TWD = 32 (Q3 was 31.64), TSMC projects Q4 2023 revenues to fall within $188 - $196 billion, with a QoQ growth of 9.1-13.8%. The YoY decrease is expected to narrow to -5.7% to -1.7%. The revenue outlook for 2023 as a whole was adjusted marginally from a decline of -10% to -9.2%. Gross margins and net operating margins are predicted to slide to 51.5-53.5% and 39.5-41.5% respectively, mainly due to cost pressures associated with the initial mass production of the N3 process. The N3 production is still anticipated to negatively impact Q4 margins by 3-4 percentage points. In light of 2024's projected lower semiconductor inventory levels than this year, the upcoming year is poised for healthy growth.

On capital expenditure, TSMC retains its previous quarter's $32 billion estimate for 2023. The spokesperson emphasized the high density of capital expenditures in recent years and anticipates a decrease in the coming years, reiterating a revenue CAGR of 15-20% and a long-term gross margin possibility of 53%.

Concerning inventory perspectives, TSMC maintains its narrative from the previous quarter that client inventory adjustments will persist into Q4. Customers remain cautious, with weak demand from China, but early signs of demand stabilization in PCs and mobiles are evident, expecting healthier inventory levels by the end of 2024.

2. Robust AI demand, advanced process yields on track, and overseas production plans for special processes

  • TSMC continues to anticipate robust demand for AI,

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